From Shivinder's eyes: How Singh brothers lost control of Fortis and Religare

Shivinder Singh's petition against brother Malvinder and former Religare CEO Sunil Godhwani points at only the tip of the iceberg in the corporate mismanagement that led to the Singh brothers losing control of Fortis Healthcare and Religare.

Former Ranbaxy promoter and founder of Fortis Healthcare Shivinder Singh's petition against brother Malvinder and former Religare CEO Sunil Godhwani provides an intriguing insight into the reasons Shivinder believes the family lost control of one of India's largest hospital chains Fortis Healthcare and one of India's largest NBFCs Religare Enterprises.

This, however, may be a limited view of L'affaire Singh brothers as the cycle of boom and bust at Fortis and Religare involved a lot more than just the two incidents Shivinder outlines.

The petition first deals with how the brothers lost control of Fortis Healthcare. Shivinder alleges that Malvinder abused his position as executive chairman of Fortis Healthcare and Religare Enterprises in 2016 and "caused the companies to extend loans in the form of Inter Corporate Deposits of Fortis" and then used his "position of control and influence with (RHC Holding) Respondent No. 1, obtained use of these funds for" RHC Holding.

In doing so, Malvinder allegedly used Rs 473 crore taken out from Fortis to pay creditors of RHC Holding. Malvinder has denied abuse of position saying he followed all procedures.

However, the petition says, "This payment had actually not helped RHC in any meaningful way and in fact has resulted in value loss to RHC far in excess of the amount of the outstanding ICDs as it leads to erosion of wealth of its subsidiary and led to resultant erosion" of RHC Holding.

More importantly, the money only pushed RHC holding further into debt trap and more financial trouble. Since these resources were taken from Fortis despite Malvinder being fully aware of Fortis's precarious financial position. As a result, Fortis, a listed company, also went into "a debt trap prejudicing the interest of its shareholders at large due". The petition says Shivinder first learned about the outstanding ICD (Inter Corporate Deposits) in October, 2016 and that he was neither involved in its conception nor its execution.

In the second instance of losing control over Religare Enterprises, the Shivinder petition says that Malvinder allegedly used his position as chairman of Religare Enterprises and caused its subsidiary Religare Finvest to create a fixed deposit of Rs 750 crore with Laxmi Vilas Bank on November 19, 2016. Against this FD, RHC Holding and its subsidiary Ramchem Private Limited were granted loans worth Rs 750 crore.

That, effectively eroded the capital of Religare Finvest while the loans taken by RHC and its subsidiary still remain outstanding. But that may be only part of the story. Once the proceeds of the Ranbaxy sale were received, Singh brothers paid nearly Rs 2,000 crore in taxes and previous loan repayments. Of the remaining Rs 7,500 crore, Rs 1,750 crore were invested in Religare to fund its growth; about Rs 2,230 crore was invested in Fortis' growth. Religare and Fortis went on a rapid-fire expansion and acquisition spree.

Once slowdown hit, Religare and Fortis were unable to service the massive debt raised during the expansion spree. Though several businesses were losing money, the biggest drain on Religare were subsidiaries Religare Capital Markets and Ligare Aviation; the latter was run by Godhwani's brother Sanjay Godhwani. Ligare reported net losses of Rs 590 crore between 2008 and 2014, the last reported results. The debt on Ligare's balance sheet shot up from Rs 3.85 crore in 2007 to Rs 730 crore in 2010. The other drain, Religare Capital Markets, reported losses worth Rs 1,628 crore between 2011 and 2016 (the last reported). Lending arm Religare Finvest also reported a net loss of Rs 350 crore in 2016/17 while its debt shot up from Rs 1,695 crore in 2008 to Rs 17,218 crore in 2016. During 2008/18, for the 10 Fortis subsidiaries and eight Religare subsidiaries whose data has been filed with RoC, Religare subsidiaries reported losses worth Rs 2,047 crore and Fortis subsidiaries Rs 650 crore.

At the consolidated level, the company went into the red soon after. From a net profit of Rs 92 crore in 2008, it reported net losses of Rs 295 crore, Rs 149 crore and Rs 481 crore between 2010/11 and 2012/13. This was followed by three years of profits and then another Rs 123 crore loss in 2016/17.

On the other hand, Fortis went into a phase of reckless global expansion across Singapore, Hong Kong, Australia, Vietnam and Dubai funded entirely through acquisitions of over $1 billion. Malvinder himself moved to Singapore to manage international operations. In 2010, Singhs even got into a takeover battle for Singapore's Parkway vis-a-vis Malaysia's sovereign fund Khazanah. The Singhs finally had to pull out and sell their stake in Parkway also to Khazanah. That was also the beginning of flipping the international acquisition and expansion strategy to focus entirely on the Indian market starting 2012-13.

By 2012/13, Fortis had gone ahead of Apollo Hospitals as India's largest hospital chain by revenue (though Apollo reclaimed its top rank right after). Since then, it has reported losses of Rs 34 crore, Rs 40 crore and Rs 75 crore in the following three years. A big reason why Fortis is in the red is the nearly Rs 270 crore licence fee it pays to the RHT Trust in Singapore. RHT owns 12 of Fortis' clinical establishments and two hospitals (Delhi and Gurgaon).

Shivinder says that inability to repay these loans resulted in the family losing control of Fortis and Religare. The first major invocation of their shareholding happened in July 2017 when RHC and its subsidiaries defaulted in payment to First Gulf Bank and the shares were invoked. The very next month, the second lot of shares were invoked in August by Indiabulls. After Supreme Court ordered maintaining status quo on Fortis sale, the third lot was invoked on August 31, 2017. And finally the fourth lot was invoked right after the SC order. "This led to a further massive value loss for RHC and Petitioner No. 2 (Shivinder)," says the petition.